Student Intern- Sociology, Jadavpur University, Kolkata
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GDP (Gross Domestic Product) is an estimated value that reflects the country’s economic performance in a year. The Bretton woods conference of 1944 was the platform where GDP was rendered its present status of being the standard tool for measuring country’s economy. The predominance of GDP owes to the intertwining of economic growth with the idea of development which is a multi-dimensional concept. Speaking in terms of Indian economy, the three sectors whose contribution is counted in GDP calculation are: Manufacturing sector with 22-23% contribution; Service sector with 60% contribution; Agricultural sector with 16-17% contribution. GDP is a very important indicator of growth, which shows increment or decrement of living standards.
Source- https://www.wisdomtimes.com/blog/how-is-gdp-calculated-india/
GDP is the total value of goods and services produced in a country’s economy in a given time period, it is denoted in percentage and the growth rate of GDP is comparable to the previous year’s GDP rate. There are different ways for calculating GDP – production method, income method and expenditure method; also irrespective of the method being used, the GDP value should remain identical. But it is important to note that GDP is not in itself an adequate indicator of country’s development, because development is multi-dimensional and GDP covers just one aspect of development i.e. economic.
Source- https://testbook.com/blog/understanding-mystery-indias-new-gdp-calculation/
In the case of India, the calculation of GDP is a tough task due to the sectored division of economy into manufacturing, service and agricultural; along with this is the prevalence of unorganised sector on a massive scale. That is to say that collection of data is difficult due to unreachable distance between agencies and local producer for e.g. farmers. Changes in the calculation of GDP have been brought in 2015, to maintain United Nations standards. Firstly, the base year has been changed from 2004-05 to 2011-12 in order to keep up with the changing time; and secondly a new data series on organised private sector, called MCA-21 is in use. It included the data of all the companies registered with the ministry of corporate affairs, and each company was given a unique 21-digit code, hence MCA-21.
But this transformation was questioned and debated when National Sample Survey Office released in its report that 36% of the active companies in the MCA-21 data base were incorrectly classified and untraceable. Those 36% of companies were actually shell companies (it is way to channel profit and save up on taxes by including the output of big companies into the sheets of its shell companies, usually this trick is applied by big companies). The ministry of Finance has denied such claims and has said that out of 36% companies, 21% of them are out of coverage, meaning they are not operating in the non-financial service sector but are involved in other economic activities like manufacturing. But such addition of shell companies will pump up the growth figures, creating misleading figures.
GDP addresses average income and it fails to reflect how most of the population lives and how actually benefits from economic growth. Hike in GDP growth rate does not indicate the sudden bright fortune of a country and in case of India, the rates of unemployment, population below poverty line; etc needs to be considered when looking at the GDP incremental rate. GDP has its own limitation as it does not include all the aspects of life, that is to say that growth in GDP is not equivalent to growth in living standards. For e.g. GDP includes production that is exchanged in the market but what about those that are not exchanged in market like working in domestic chores and not hiring domestic help services? Levels of inequalities in not reflected in GDP because GDP per capita is only an average. If GDP per capita increases by 2%, it could mean that GDP for everyone in the society has risen by 2%, or GDP of some group has risen more than others who’s GDP has risen by less. But how much of difference persists that could actually state the level of growth or decline is not explicitly revealed by GDP rates. Likewise, GDP includes cost of buying or producing environmental equipment like pollution control parameter device, but it does not reflects or includes the actual level of pollution control or cleanliness and hygiene. The material well being is well measured by GDP but the broader sense of standard of living is not measured with precision, and hence GDP calculation and statistics paints only the half picture of development and progress. It is theoretically possible that while GDP is rising, the standard of living could be falling if human health, environmental cleanliness, and other factors that are not included in GDP are worsening.
According to a working paper by Pradeep Agarwal for the Institute of Economic Growth, a single percentage point increase in GDP per capita reduces poverty by 0.78%. In other words, an additional 1% increase in the GDP per capita can potentially lift about 3 million Indians out of poverty. In all this chaos, the common people are left wondering whether a percentage point decrease or increase in GDP per capita makes any difference. In 2011, the growth rate of GDP per capita was 9%, but it slipped just below 6% last year. The reality is that such a difference in GDP per capita is the difference between lifting 9 million out of extreme poverty or leaving them in deprivation.
The use of GDP as an indicator of growth has faced a lot of criticism and hence the other alternative possible measures to calculate growth have been referred. One such possibility is the use of Human Development Index. Amartya Sen and Mahbud ul Haq developed this Index. It measure economic growth, education and health. Another one is Human Capital Index which was launched by World Bank in 11th October 2018. Its focus unlike GDP is on outcomes and not inputs. HCI is more suitable for developing countries as it can used to quantify the results of social sector investments which can further result in increased spending on Human Development (social security, health, education etc). To measure societal development, the Commission on the Measurement of Economic Performance and Social Progress wanted to investigate alternative measurement of wealth and social development as against uni-dimensional GDP measure, and as a result of this effort what we have now is called SPI (Social Progress Index). This index is appropriate to synthesise developmental growth because of its capability to incorporate various indicator of subjective components like political rights, tolerance, level of corruption, discrimination and violence, and other foundations of well being and progress. And surprisingly this measure is an inclusive index for measuring development, which shows that countries that rank best in terms of GDP are lagging behind in other developmental variables. Income and wealth inequality drags down the GDP growth along with negative impacts on human development. GDP measures economic progress but the negligence or under estimation of social progress results in incomplete valuation of development in a country.
Source- https://www.theigc.org/blog/is-gdp-an-adequate-measure-of-development/
According to the study, Religious Change Preceded Economic Change In the 20th Century published in the journal Science Advances, India is ranked at 66th amongst 109 countries, in terms of secularisation. The study says that India’s per capita GDP per annum grew 26 times between 1958 and 2018; but if Indians were less rigid with their religious views then the increase could have been higher. Because of less participation by women and the limited role of marginalised groups like scheduled caste, the Indian economy and its growth has been pulled back. The study clearly stated “If India were to reach secularisation levels seen in western Europe (like Germany, which was ranked 6th of 109 nations), then it could expect to see a Rs 70,175 ($1,000) increase in per capita GDP over 10 years, Rs 1,96,490 ($2,800) over 20 years and Rs 3,50,875 ($5,000) over 30 years”.
Major impediments to full scale development of India are gender and caste based discrimination. According to the World Bank report of 2017, 19.6 million Indian women left their jobs in between 2004-5 and 2011-12. Inaccessibility of women and lower caste people from formal sectors, and precluding them from taking advantage of capital and equal pay; indicates that religion majorly impedes economy and its advancement. Casteism is deeply embedded in Indian society and the restriction imposed in terms of access to resources and opportunities, on those who rank lower in the caste hierarchy worsens the situation even more. It would be unjust to look at Indian economy without a gender and caste perspective, because social norms and orthodox religious rules engulf almost all the aspects of Indian society.
Treating GDP as an indicator of a country’s general well being is an inaccurate measure. GDP measures what it was intended to, that is increase or decrease in production and the expenditure pattern of spending. The quality of life cannot be measured by GDP since its primary focus is on marketed economic activity. Another concern raised against GDP is that increase in GDP often comes at a cost of degrading ecosystem (extensive and robust economic activity leads to rapid depletion of natural resources), increasing income inequalities, decreased workers leisure time and productivity. Some alternative indicators like Genuine Progress Indicator uses GDP as the foundation and uses the same personal consumption data as GDP but makes deductions to account for income inequality, environmental degradation, crime rates etc. Such an indicator tends to measure sustainable economic welfare. Other alternatives to sole dependence on GDP are namely Green GDPs, Genuine Savings (keeping at side the equity related pattern of consumption, GS measures the sustainable use of resources because improved human capital and other intangible wealth results in increase of country’s wealth), Millennium Development Goals and Indicators etc. But methodological issues and resistance to change makes attempts of developing better measures of progress, obstructed. The reliance of policy makers, businessmen and the general public; on the concept of ‘growth is good’ is in itself an impediment to the realisation that economic growth is not economic well being or human and societal well being per se and hence GDP is not the appropriate measure for measuring human well being (which is not just economic well being but also social, cultural, political and personal well being). It is important to realise that social life is full of complexities and hence a single indicator like GDP fails to capture the multi-dimensional aspects of development and there is a need for more comprehensive and integrated set of indicators. Things have changed between 1944 (when GDP became the specialised tool for measuring economic growth) and 2019, and dynamism is a core aspect of each and every sphere which demands for more than an economic activity measurement tool.
Source- https://www.bu.edu/pardee/files/documents/PP-004-GDP.pdf
But concern for environmental protection and GDP increment is hard to move hand in hand. For e.g. if one grows more tree, buys less plastic and consumes less energy; GDP is likely to decrease. And on the other hand, GDP increases if people will buy more automobiles and government will spend less on public transport which will lead to increase in pollution level. Similarly, GDP will decrease if people decide on building eco-friendly houses by using less cement; if the use of steel and bauxite in the hills are brought down. But GDP will increase at the cost of population’s health, which is to say that if more mangroves are cut down to accelerate the use of bullet trains in Mumbai then GDP will increase. The spending of people on health and disaster relief management, counts as a contribution to the GDP of the country. GDP doesn’t take into account the loss of social capital and cultural capital due to the construction of big dams and mining which eventually leads to displacement and improper rehabilitation. Concerns for environmental measures might demand the closing of those factories whose emission level of polluting substances might be higher; but this won’t have a positive impact on GDP because then it is likely to decrease.
But it is important to realise that environment has a major role to play in GDP because in 2013 India’s GDP loss was at more than 8.5% due to air pollution resulting in welfare costs and costs of lost labour.
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